D.C. Circuit Rules Against FCC in Content Company VPCI Case

An FCC order that would have let participants in the commission's AT&T/DirecTV transaction proceeding review confidential programming and retransmission consent contract data is “substantively and procedurally flawed,” U.S. Court of Appeals for the D.C. Circuit Judge David Tatel said in a unanimous opinion in CBS et al. v. FCC, vacating the order. The Comcast/Time Warner Cable proceeding had been part of the case, but that portion was rendered moot by the collapse of that deal. The court loss is seen as putting the FCC in a difficult position in its review of AT&T/DirecTV, industry officials connected with the court proceeding told us. Though the opinion leaves the door open for the FCC to issue a new protective order, doing so could further delay AT&T/DirecTV, while not doing so could expose an agency decision approving the deal to court challenge, said industry officials.

“We are studying the opinion now and considering the options available to the Commission,” emailed an FCC spokesman. He declined to comment on if or when the AT&T/DirecTV 180-day transaction shot clock -- frozen at day 170 pending a decision in this case -- would restart. AT&T and DirecTV didn't comment.

The court's leaving the door open for a reconsidered rule could slow FCC review of AT&T/DirecTV, said officials connected with the FCC and court proceedings. The FCC and AT&T are seen as eager to complete the review, but a new rule process, possible future challenges to any disclosure of video programming confidential information (VPCI), and allowing commenters to review released VPCI would likely take a while, said industry officials connected with the FCC proceeding. “Merging companies are always in a hurry, but AT&T/DirecTV has already taken longer than most mergers,” said Guggenheim Partners analyst Paul Gallant. “They're eager to capitalize on cross platform opportunities.”

An FCC decision to approve the deal without trying to put out a new confidentiality order could provide easy arguments to any court challenge, said an attorney who opposed Comcast/TWC. Commission arguments that the VPCI was central to the deal review could be turned against it, and the FCC wouldn't be able to argue that the court had told it such an order was unacceptable, the attorney said. The FCC resurrecting the order is not seen as likely, said an official at one of the content company petitioners in the case. The petitioners believe the FCC will let the matter go, the official said.

FCC arguments that releasing the contract data was in the public interest and helpful for informing the deal review proceeding didn't show that the release was “necessary” -- the standard required by the Trade Secrets Act and the FCC's confidential information policy, Tatel said. “Disclosure would serve the public’s interest in a thorough review process, and the benefits outweigh the harms.” The FCC “falters at the last requirement: the confidential information must be necessary to the Commission’s review process,” Tatel said. The court has “no doubt that petitioners’ VPCI, as well as commenter analysis of it, would be helpful to the Commission’s evaluation of the proposed mergers,” he said. “Nowhere does either the Bureau or the Commission make the jump from useful or relevant or central to necessary.”

Tatel focused on the Media Bureau's issuance of a reconsidered confidentiality order that would have let the contract data be released five days after the bureau ruled against objections to the VPCI's release. That recon order was issued after the content company petitioners in the case objected to every filing requesting access to VPCI, and Tatel saw it as limiting judicial review, since the information would be disclosed before the courts would have a chance to rule on the disclosure. “We share petitioners’ apprehension about a process that puts tremendous pressure on the Commission, the parties, and this court to get their ducks in a row,” Tatel said. FCC rationale for changing the rule was also too thin, he said. The agency was “in a deep hole” on this issue, Tatel said.

The D.C. Circuit takes “no position on what the Commission should do next,” the opinion said. “When it reconsiders its disclosure order, the Commission is free to clarify its current policy or to amend it." That could include clarifying that necessity no longer be the standard for when VPCI is disclosed, the opinion said. The D.C. Circuit cautioned the FCC that should it retain the five-day rule, “it must not only come forward with a 'reasoned analysis' for this dramatic break from the past, but also explain why speed is so important as to justify limiting one of the fundamental principles of administrative law -- judicial review.”

The decision is "a good case study of how bad process leads to bad outcomes," FCC Commissioner Ajit Pai said in a statement. Pai voted against the release of the contract data, and said the process leading to the order's passing was "extremely truncated." The "cursory two-page order that was vacated by the D.C. Circuit today was presented to me at 1:39 PM on November 10, 2014. I was then told that I had to cast my vote by the end of that day; otherwise, the confidential documents would be disclosed to third parties," Pai said. "Based on today’s D.C. Circuit decision, it is obvious that the Commission’s order would have benefited from more thoughtful deliberation."

Commissioner Mike O'Rielly was "relieved" at the court's decision, he said. "Although I disagree with the court’s assessment that there was an adequate explanation why disclosure is in the public interest or a good idea on balance, the Commission undeniably failed to show that disclosure of this extremely sensitive information to third parties was necessary."